Following commercial banks, insurance institutions are expected to start trading in treasury bond futures. The treasury bond futures market will welcome influential institutional investors again.
On February 21, with the consent of the State Council, the CSRC, the Ministry of Finance, the People’s Bank of China, and the China Banking and Insurance Regulatory Commission jointly issued an announcement to allow eligible pilot commercial banks and insurance institutions with investment management capabilities to participate in the China Securities Exchange's government bond futures trading in accordance with the principles of legal compliance, controllable risks, and business sustainability.
Regulatory departments have promoted commercial banks and insurance institutions to enter the market to participate in treasury bond futures transactions, using a batch-wise approach. At present, the first batch of pilot institutions including Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications, etc. have successfully entered the market.
The Futures Daily reporter was informed that the China Banking Regulatory Commission had previously drafted the “Notice on Matters Related to Insurance Funds Participating in Treasury Futures Trading (Draft for Comments)”, and revised the “Measures for Insurance Funds to Participate in Financial Derivatives Transactions (Draft for Comments)” , as well as “Notice on Related Issues of Insurance Funds Participating in Stock Index Futures Trading (Consultation Draft)”. Relevant system arrangements are expected to be issued in the near future.
After the introduction of the above-mentioned system, insurance institutions will enter the market to participate in treasury bond futures trading. At the same time, their relevant regulations for participating in stock index futures hedging transactions will be further optimized.
In recent years, "negative interest rates" have rapidly spread in global financial markets. According to the review report released by the Bank of International Settlements in September 2019, the size of global negative interest rate bonds is close to $17 trillion, accounting for about 20% of world GDP, while in 2014, this figure was almost zero. With interest rates falling and fixed-income product yields falling, insurance institutions urgently need medium- and long-term interest rate risk management tools.
Analysts pointed out that the entry of insurance funds into the treasury bond futures market is of great significance to both insurance institutions and the treasury bond futures market. On the one hand, insurance funds participating in the treasury bond futures trading can enhance their interest rate risk management capabilities and asset-liability management level; on the other hand, the entry of important institutional investors into the market will further improve the structure of the treasury bond futures market investors and enhance the depth and liquidity of the treasury bond futures market. In addition, it also helps to optimize the benchmark interest rate formation mechanism and promote my country's interest rate market reform process.
In an interview with a Futures Daily reporter, Chen Tao, a senior person in the insurance industry, said that at present, insurance institutions continue to pay attention to the progress of relevant policies and have made various preparations in advance. Some insurance institutions have carried out assessments and preparations for asset scale, internal control, personnel reserves, investment strategies, and system construction in advance. Some insurance institutions also have begun to discuss cooperation with futures companies.
According to Chen Tao, under the current environment, the main requirement for insurance institutions to participate in the treasury bond futures trading is to manage the risk of mismatch in the asset and liability duration gap of the company. "It is expected that insurance institutions will initially try to participate in treasury bond futures trading according to the following principles: one is for hedging and hedging purposes; the other is to adopt targeted strategies to meet the company's risk management needs." Chen Tao said.
In order to welcome the entry of insurance and other institutional investors, futures companies have also made relevant preparations. The relevant person in charge of CITIC Futures told reporters that the company has made layout and active preparations in advance in technology, risk control, settlement and other transaction support and research, asset management and other customer services.
"The company gathers the strengths of various departments and set up a special service group in advance to provide professional and personalized comprehensive financial service solutions for insurance and other institutional investors. At the same time, we will prepare service manuals, write special reports, hold special topics meetings, conduct customer-oriented training and other means to provide services and support to customers." The above-mentioned person in charge of CITIC Futures said.